Studie - Non-Traditional Players in Retail Banking: The Customer Opportunity

Introduction

The financial crisis has had a huge impact upon the banking world. Many established banks have been weakened, subject to tougher regulation, and suffering from diminished trust. This has created an opening for non-traditional providers to move in and take advantage of their stronger reputations. However, they also need to be aware of obstacles, such as customer inertia, that stand in their way.

Scope

*Strengths that can provide non-traditional entrants with a competitive edge over established banks, such as expertise in customer analytics.

*Weaknesses that such providers need to deal with, such as high levels of customer inertia and the difficulties faced in selling advice-led products.

*Opportunities that will benefit these institutions, for example technological developments lowering the costs of entry.

*Threats that exist to the wellbeing of new, non-traditional providers, such as lack of expertise in the provision of financial services.

Highlights

Expertise in database management and customer analytics gives supermarkets and other retailers a competitive advantage over the banks when it comes to marketing products and services.

Non-traditional providers will find it extremely difficult to overcome the high degree of inertia in the current account market.

Not having launched operations in the immediate aftermath of the banking crisis means that prospective entrants may have missed their best window of opportunity to win over disaffected customers.

Reasons to Purchase

*Presents case studies of providers who have already entered, or are in the process of entering, the financial services industry.

*Highlights the main strengths that new entrants to retail banking can exploit, as well as the weaknesses they need to contend with.

*Discusses the opportunities that exist in the market for non-traditional providers, and the threats to their prospects for success.

TABLE OF CONTENTS

Overview 1

Catalyst 1

Summary 1

Methodology 1

Executive Summary 2

Datamonitor concludes that new providers will have only a limited impact on the market 2

Non-traditional players seeking to enter the banking market face mixed prospects 2

The case for non-traditional players 4

The case against non-traditional players 9

Introduction 17

The banking crisis has created an ideal climate for new entrants 17

The Future Decoded 22

Strengths 22

Weaknesses 40

Opportunities 53

Threats 59

APPENDIX 76

Supplementary data 76

Definitions 83

Methodology 84

Further reading 85

Ask the analyst 85

Datamonitor consulting 85

Disclaimer 85





TABLE OF FIGURES

Figure 1: Consumers with diminished trust in their main bank are willing to look elsewhere 5

Figure 2: Sainsbury’s is using its Nectar loyalty scheme to entice customers 7

Figure 3: Current account market share is concentrated in very few hands 10

Figure 4: Only a minority claim they are willing to purchase financial products from supermarkets 11

Figure 5: Consumers with diminished trust in their main bank are willing to look elsewhere 19

Figure 6: There is a strong link between falling levels of trust in industry and likelihood to shop elsewhere 20

Figure 7: Consumer trust in banks has been badly hit, especially in the US and northern Europe 21

Figure 8: Tesco already offers a wide array of financial products and services 24

Figure 9: As well as having an online presence, Tesco also offers in-store banking facilities 25

Figure 10: Alior is the largest ever bank launch in Polish history 27

Figure 11: The US fashion retailer Nordstrom offers full banking to its customers 29

Figure 12: Through its Greenbee brand, John Lewis markets a wide range of insurance policies 31

Figure 13: O2 has recently introduced two new payment cards 32

Figure 14: Customer satisfaction with credit card providers is much higher for non-bank institutions 34

Figure 15: Sainsbury’s is using its Nectar loyalty scheme to entice customers 37

Figure 16: Tesco has effectively integrated its credit card into its wider loyalty program 39

Figure 17: Is this an appropriate environment in which to sell mortgages and pensions? 43

Figure 18: Current account market share is concentrated in very few hands 44

Figure 19: Non-financial providers currently hold limited appeal for consumers 46

Figure 20: Only a minority claim they are willing to purchase financial products from supermarkets 47

Figure 21: Banks still enjoy levels of trust comparable to other organizations, in the UK and globally 48

Figure 22: ING Direct: When saving doesn’t feel so good 50

Figure 23: Tesco Compare has failed to make inroads into the price comparison market 51

Figure 24: RBS could be forced to sell off its branches in England 54

Figure 25: Across all markets, the current account drives cross-selling of other products 56

Figure 26: There has been a severe contraction in the availability of secured and unsecured credit 59

Figure 27: Deposits held at HBOS fell in 2008, along with consumer confidence 61

Figure 28: Prudential sold Egg to Citi in 2007, having failed to make a success of the venture 64

Figure 29: Marks & Spencer’s Lifestore concept failed to attract customers in sufficient numbers 66

Figure 30: National Savings & Investments prominently emphasizes its 100% Treasury-backed guarantee 70

Figure 31: Abbey is launching a fee-free bank account for its mortgage holders 72





TABLE OF TABLES

Table 1: New providers at a glance 23

Table 2: Tesco outlets in the UK, as of November 2009 40

Table 3: Impact of fall in trust with primary bank on likelihood to investigate other banks 76

Table 4: Current account market share in the UK 76

Table 5: Products consumers are willing to purchase from supermarkets 77

Table 6: Impact of fall in trust with banking industry on likelihood to shop around for financial products 77

Table 7: Extent of fall in trust in banking industry 78

Table 8: Customer satisfaction with credit card providers 79

Table 9: Popularity of non-financial providers for financial products 80

Table 10: Extent of trust in financial institutions (rated on five-point scale) 80

Table 11: ING Direct: savings rates and deposits 80

Table 12: Extent of cross-selling 81

Table 13: Change in availability of credit over time 81

Table 14: Nationwide Consumer Confidence Index 2004—2009 82

Table 15: HBOS: value of total deposits over 2004-2009 83

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